Donegal Group Inc (DGICB) 2004 Q3 法說會逐字稿

Good day, ladies and gentlemen. My name is Jonathan and I'll be your conference coordinator for today. I'd like to welcome everyone to the quarter three, 2004 Donegal Group earnings release conference call. At this time all audio participants are in a listen only mode. However, at the end of this conference, we will be facilitating an interactive question and answer session via the telephone lines. If at any time during this call, do you require assistance, please key star zero and a coordinator will be happy to assist you. As a reminder, this conference is being recorded for replay purposes. I'd now like to turn this presentation over to your host for today, Mr. Ralph Spontak, Chief Financial Officer for Donegal. Sir, you may proceed.

Good morning, everyone. And welcome to the Donegal Group Inc. earnings release conference call for the third quarter ended September 30, 2004. I'm Ralph Spontak, Chief Financial Officer and I will be starting the conference call off by reviewing some of the key financial components of the quarterly and year-to-date results. When I'm completed, Don Nikolaus, president, chief executive officer of the Donegal companies will then discuss some of the current trends we're experiencing. Before we get started, I'd like to read our forward-looking statement. All statements contained in this conference call that are not historic facts are based on current expectations. Such statements are forward-looking in nature and involve a number of risks and uncertainties. Actual results could vary materially.

Among the factors that could cause actual results to vary materially include the ability of the company to maintain profitable operations, the adequacy of the company's reserves for loss and loss of adjusting expense, severe weather, business and economic conditions in the company's primary operating areas, competition from various insurance and non-insurance businesses, terrorism, legal and judicial developments, changes in regulatory requirements and other risks that are described from time to time in the periodic reports that the company files with the security and exchange commission. In light of the significant uncertainties inherent in forward-looking statements, the inclusion of such statements should not be regarded as a representation by the company or any other person. The company disclaims any obligations to update such statements or to announce publicly the results of any revisions to any forward-looking statements, included herein, to reflect future events or developments. Undue reliance should not be placed on any such forward-looking statements.

With that, I'd like to go through some of the key components of the quarterly and year-to-date earnings. Net income for the third quarter of 2004 was $5,886,886 or 43 cents per common share on a diluted basis. This compares to $4,001,385 or 40 cents per share on a diluted basis for the third quarter of 2003. The results for 2004 were achieved despite claims from a series of severe weather events in the third quarter that totaled approximately $3.2 million and reduced net income by $2.1 million or 15 cents per share on a diluted basis. The weather events in the quarter included the impact of four hurricanes with the storm losses occurring primarily in the Mid-Atlantic and southeastern regions. These losses were noncoastal in nature.

Even with the impact of these weather events, the company's recent fine underwriting results continued during the third quarter of 2004 with the company posting a combined ratio of 95% for the third quarter of 2004 compared to 96.8% for the third quarter of 2003. The third quarter 2003 results were impacted by a million dollars of losses from hurricane Isabel. Excluding the impact from the third quarter of 2004 storms, the combined ratio for the third quarter of 2004 would have been 90.4%.

Net income for the year-to-date, 2004 was $24,389,000 or $1.79 per share on a diluted basis. The year-to-date figures include an extraordinary gain from the first quarter of this year of $5,445,000 or 40 cents per share on a diluted basis. The extraordinary gain resulted from GAAP purchase accounting for unallocated goodwill related to the LeMars acquisition that took place in January. The company's combined ratio for the first nine months of 2004 was 93.2% compared to 95.4% for the first nine months of 2003.

Year-to-date results for both the commercial lines area and personal lines area were excellent with commercial lines posting stats to a combined ratios in the mid 80s for the first nine months of this year. And personal lines posting a statutory combined ratio in the low 90s for the first nine months. The impact from the third quarter storms was primarily in personal lines. Even with the impact of these storms, the personal lines segment of our business was able to post a combined ratio of 96.7% for the third quarter of 2004. The company's total revenues in the third quarter of 2004 increased 35.6% over the same period in 2003 coming in at $73,613,000. Just a reminder that that increase includes the two acquisitions that took place earlier in this year.

Excluding premiums from the two acquisitions, the company's premiums earned grew at a rate of 9.6% in the third quarter of 2004. The company's GAAP expense ratio in the third quarter was 32.2% which continues to reflect higher levels of incentive expenses particularly contingent commissions due to our increased profitability. Loss developments continue to be good with the company's reserves from the end of 2003, continuing to show redundancies through the nine months of 2004. The company's book value per share increased to $17.79 per common share at September 30, 2004. The company's board of directors yesterday declared a cash dividend for the company of 12 cents per share for each share of Class A common stock and ten and a half cents per share for each share of Class B common stock. This dividend will be payable on November 15th to shareholders of record as of November 1st. At this point, I'd like to turn the call over to Don Nikolaus, president and chief executive officer of the Donegal companies. Don?

Thank you, Ralph. Good morning, everyone. And thank you for joining our earnings call. Needless to say, in a quarter in which a company experiences four hurricanes and one substantial tornado event, we are pleased to be returning the kind of earnings that Ralph has announced and has discussed here in this conference call. It does reflect, as we've said both in our earnings release and in the preliminary release approximately a week to ten days ago, that we think that the results, in spite of the various hurricanes reflect the underwriting discipline and the careful management of catastrophe exposures that we do maintain.

With regard to the growth of premium, we're certainly gratified that the premiums earned during the quarter were as Ralph had indicated, 9.6% exclusive of the two acquisitions that were achieved and that's certainly within the range of what we would have anticipated. Although we do see there to be a somewhat growing trend in premiums written and premiums earned. On the topic of our distribution system, generally in these calls, we talk about how we are growing our distribution system. We are on target to achieve about 100 new agencies for the year 2004. In the third quarter, we would have added approximately 20 agencies to bring us year-to-date somewhere in the neighborhood of 82 to 83 agencies, year-to-date.

Our fee income is of course reflected in the financials but we're gratified to see that our quarterly fee income basically from service charges, approaches approximately a million dollars. It's $965,000, has grown very nicely from the year before of $616,000 and although insurance companies are different than the revenue stream from fees that banks have, we certainly are sensitive to it and try to do within reason what we can do to grow fee income. So, we're pleased that we're reaching that milestone of approximately a million dollars. During the quarter, we continued to develop insurance products primarily at least that's to this comment. As it relates to personal aligns products, we're doing more and more segmentation of those products by creating additional tiers so that we can address and attract the most profitable business and as you may be familiar in personal lines companies, such as Progressive, do similar things and certainly we are mindful of where the large competitors are in this arena. And we are making sure that our product line is comparable to the largest of the competitors against whom we compete. We think we have our strategy worked out and we've begun to roll out additional products that will address that and broaden the market that we serve.

During the third quarter, we have also begun to roll out our new technology which is basically an advanced underwriting system. This is for personal lines. We are calling it Write Pro -- (spelling out) WRITE second word PRO. And we have recently had numerous meetings in the state of Pennsylvania which is the first state that we're launching the product and it's a combination of very advanced technology that automatically underwrites orders reports but also embedded within it is the new products that we are bringing to market. So, we have -- we believe there is a lot of potential as we will roll that product out over the next year. In the other states, particularly probably 12 of the other states in which we do business.

Just a little discussion about acquisitions. We continue to talk to various people in our efforts to identify candidates and needless to say, we wouldn't be in a position to give any details but we continue to see an increased opportunity to at least to have preliminary discussions and our experience is is that you need to build a pipeline of companies that you are having dialogue with. So, we are encouraged on that front. At this point, I'll turn it back to Ralph and we'll move forward with questions.

Jonathan, I think at this point we're prepared to start taking questions.

Ladies and gentlemen, if you do wish to ask a question at this time, please key star one on your telephone. If your question has been answered and you do wish to withdraw your question, please key star two. Questions will be taken in the order they're received. That's star one for questions at this time. A moment as we compile a list of questions. Your first question will come from the line of SunTrust Robinson Humphrey.

Good morning. This is David Lewis with SunTrust Robinson Humphrey.

Good morning, David.

Good morning. Couple of questions since you did talk a little bit about the contingent commissions driving up the expense ratio, obviously you have Elliott Spitzer would like to eliminate contingent commissions throughout the industry. And I think they're paid in obviously different forms, coming from different companies. Would you characterize your contingent commission as more of just a profitability or is there a persistency in volume component included in that?

First of all, David, I think what I would like to do is address the whole topic. What you have primarily seen Elliott Spitzer investigating and making his press releases relate to brokers and insurance companies. And although the various articles talk about contingent commissions, what they're really talking about are what are known as placement service agreements or market service agreements. And the broker, as I'm assuming everyone on the phone call knows, a broker represents the insurer. And therein lies the issue that Mr. Spitzer is identifying. That placement service agreements with insurance companies based upon the volume that might be placed with that insurance company would clearly be a potential conflict or a real conflict of interest with the insured whom the broker represents. We do not deal with brokers. We have licensing agreements and contract agreements with independent agents. And as part who represent us and not the insured.

Embedded in their contracts are what we call contingent commissions. And they generally are a sliding scale based upon the size of the agency and the levels of profitability. We believe and I think that, that that will be generally supported by a vast number of people in the industry that the arrangements that we have and similar situated companies that those arrangements are totally legal and that there is nothing inappropriate about them. That is not to say that as the result of the firestorm that's being created because of the placement service agreements between brokers and insurance companies, there may be some overall industry change somewhere in the future. But certainly there is nothing that we are doing or companies similarly situated to ourself that is either inappropriate nor do we believe it represents conflict of interest.

Yeah, I totally agree with your comments. Let's kind of just look at -- let's assume there is a reform throughout the industry and frankly, all contingent PSAs, MSAs are all eliminated. How do you think that would hurt or enhance your competitive position?

Well, I've thought about that. Needless to say, if all of the independent agency companies that we would do business with, if they all followed suit, everybody in the industry did the same thing. I think the playing field would remain as it is. More than likely, it would result in some other modification of compensation to agents unrelated to profit commission. Or for any type of a volume component of that contingent commission. But we certainly would not see that it would be adversely affecting us. As a matter of fact, our view of the world always is when larger companies are having problems, because of whatever issues are -- they are confronted with, we as a regional company, because we're able, I think, to first of all we don't play on the same radar screen that some of them do. And also that because we're on a regional basis, we can react more promptly and I think that our contact into our distribution system that we would be able to adjust faster to whatever that changing landscape is. So, we would view it, if there was such a change in the industry, we would view it as neutral to positive for us because we think we could react more timely and maybe handle it better than maybe some of the large companies might.

Just a final question on that subject. Elliott Spitzer mentioned that bid rigging is rampant throughout the insurance industry including auto and homeowners, as well as commercial. Do you have any thoughts or have you heard of bid rigging on those sides of the business?

We have heard of no such thing. On the homeowner automobile side. Now, you would maybe be more familiar than I but I didn't think that that's what Spitzer was saying. I thought that was the commissioner in California, Garamendy (ph) was suggesting. And in any event, whoever is suggesting it in a regulatory capacity, I can't speak for the other 2,500 or 3,000 insurance companies in the industry but we are not aware in the markets that we serve in that that is taking place in any way. Certainly not taking place involving us. But we would assume we would be aware if there were other insurance companies and agencies that might be engaging in such activities. So, we don't believe that there is reality to that.

Good. Well, I've got other questions. I'll come back if they're not asked. Thanks very much.

Your next question is from the line of Mike Grasher of Piper Jaffray.

Good morning. Question on -- if you could address pricing trends that you may be seeing by each of your business lines. Commercial versus personal obviously.

Ok. Well, let's start with commercial first. I think it's important to understand the product mix and where we play as a commercial underwriter. We are in the small to mid market account which we define anywhere between $1,000 to 50,000-60,000. We certainly write some accounts in the 75 to 150 range. But the vast majority of our business is between 1,000 and 50 to $75,000.

Understood.

In that range, the competition has not heated up as much as we understand may exist in some of the larger accounts where, correspondingly, may be much greater rate increases were put into effect in the years 2001through 2004. We are seeing that in the commercial market, that you don't have the same environment to be getting double-digit increases but in the filings that we would have made earlier in the year and have recently made, we are certainly looking to obtain increases anywhere between 4% and 8% depending upon the particular product line. That isn't to say on a particular renewal or particular new piece of business that we might think suits our appetite and that would be a quality piece of business. We might do better than that. But we look at our book as a whole.

On the personal line side, certainly the hurricanes and the overall weather conditions -- we think will put a floor under property rates, certainly on the homeowner's side but probably also the property rates on the commercial side. We would see opportunities and I don't mean this being opportunistic. But we would see it as a direct result of the losses the companies have experienced and homeowners because of the weather that rates will continue to trend upwards in homeowners. Simply because the loss costs will be very much demonstrating that it is appropriate.

On the private passenger automobile side, there certainly are not the continued rate increases of large percentages that you would have seen in the past. But we subscribe in Pennsylvania, New York and a couple of other states, a service that shows us what the rate filings are of other companies. And we continue to see modest rate increase filings being made for private passenger automobile although certainly, they're not as significant as they would have been in the past. Having said that, we think that such companies such as ourselves and others are beginning to try to segment their prices so that they may be getting rate increases targeted to a certain profile of accounts and they might be in more -- what is perceived to be maybe more profitable business. They may be shaving the prices somewhat there. Hopefully that gives you some is overview.

Yes, thanks very much. And then you spoke briefly about acquisitions and how you're developing your pipeline of dialogue. Any particular area that you're seeing more or less of in terms of personal versus commercial or any discussion around -- do you care to -- I guess to have any discussion around pricing and what that might be like right now?

I wouldn't want to talk about pricing. In terms of the kind of -- I guess opportunities that we either hear about or are presented to us, they're generally as we have always done in the past, they're generally modest-sized companies. Geographically, they would generally be in the regions that we're currently doing business in or looking to expand in. And they would generally be companies that might have a slightly higher percentage of personal lines but some bulk of commercial so they might be anywhere from 50/50 to 60% personal lines, 40% commercial. Maybe 70% personal lines, 30% commercial. So, it would vary but it would be a not uncommon thread to it.

Ok. One bookkeeping question. Do we have the book value effect FASB available?

The FASB effect is 34 cents. The book value minus FASB 115 is $17.45.

Thank you very much.

Your next question will come from the line of Beth Malone of Advest.

Good morning.

Good morning, Beth.

How are you?

Good.

Just a couple of clarification questions. When you talk about the fact that some carriers are starting to tier the market and I'm hearing from some of the regionals as well as the larger carriers, there is greater focus on tiering and that they have many more levels than any time in the past and that's one of their competitive advantage. Is the technology you all have developed for your agents, does that give you some flexibility in terms of pricing and will you be slicing and dicing the customer a lot more than in the past?

The answer to all of those is yes, yes and yes.

Ok.

The recent tiers that we have filed in Pennsylvania -- this is by example now, would have hundreds of tiers. And as a practical matter, the only way to have that quoted and underwritten is in an electronic environment. So, the Write Pro technology that we have developed does all of that. And this is certainly nothing proprietary. We use decision trees and we use various other black box technology that enables all of that to happen within a very short period of time. Probably less than after the information is entered. Less than a two-minute period of time to be able to generate an accurate quote. That addresses our pricing tiers as well as the profile as well as the various underwriting report results.

Ok. The storms in the south that you experienced in the third quarter were highly unusual. I guess they, in some ways -- in many ways, they were records. Has that had any impact on your pricing and will it have any impact on future underwriting? Are you going to expect that kind of activity going forward when you price some of these risks?

Well, now so that we could make sure that there is a good understanding, a higher dollar amount, probably two to one, of our public company losses from the hurricanes are really in the Mid-Atlantic states. It is when hurricane Ivan and Jeanne came up through states like Pennsylvania that we had far more losses in Pennsylvania than we did in Alabama, Georgia and Tennessee. We were as surprised by that as probably the listeners here would be. But we -- and I think it goes back to underscore that we have been very disciplined in the underwriting and the catastrophe management in those areas where you would traditionally think of hurricanes having an effect.

When it got to the northeast, it was not wind but it was a certain amount of wind but it was primarily heavy amounts of rain and flooding that although we don't insure flood, there are always collateral losses that are based upon certain coverage elements within a policy. And so, therefore, we would not see -- there would be anything that has changed -- that will change in our underwriting strategy because we think that the -- first of all, four hurricanes in one month or one and a half months is an extraordinary -- I think you would have to go back to the 1880s or something to find a similar event. But even if that were to reoccur, we think that our underwriting is and was appropriate. Now, on the pricing side, I think that it will find its way into the pricing because the lost costs that are the primary generator of rate increases will reflect these losses and it will be in nautical states, at least as we'll view the world.

Ok, great. Thanks very much.

You're welcome.

Once again, ladies and gentlemen, for any additional questions at this time, please key star one. For any additional questions, please key star one. Your next question will come from the line of Adam Cloober of Cochran, Caronia.

Good morning, that's Adam Klauber. Thanks.

Good morning, Adam.

The loss ratio if you exclude catastrophes was down materially from where it has been. How much of that was due to reserve releases and how much of that can we expect going forward?

We actually have not done any formal reserve releases. We continue to have favorable loss developments. Somewhere in the 1% range from our core companies. The trend on our claims certainly has continued quarter to quarter, showing a nice consistent decline going back over the last eight quarters. We -- I think each of the quarters this year, we got similar questions and we're always hesitant to say that that trend will continue when you've had a quarter X storm -- unusual storm losses that is probably the best level the company has had in its history. So, it is always difficult to project additional improvement over and above that but certainly, the trend has continued upon a nice linear path and this quarter, again, excluding the unusual storm losses, would have continued that line.

Related question. Are you still seeing favorable auto loss trends? In particular are you still seeing frequencies move in the right direction?

Yes. We definitely have seen the continuation of the trend of lower frequency in automobile and our automobile results continue to be private passenger automobile results continue to be very favorable compared to prior years.

Let me follow up a little bit. As you probably know from our history, we don't give a great deal of guidance, however, what we do do is say that we're going to continue to underwrite and price our business and market our business as we have in the past. And we're going to try very hard to do the very best possible job we can do at that. And needless to say, that has historically produced very favorable results in most years, certainly much better than the industry and on a relative basis, very good and I think that that's what we would be saying to you, that we -- we're going to continue to do the same kind of things we've done in the past. And certainly our hope and expectation would be that we would produce very favorable results. But we certainly can't say well they're going to be the same as or they're going to be very close to what would have been produced in this past quarter.

I'd also like to add that although we'e focused, and rightly so, on the storms that took place in the southeast and in Mid-Atlantic, weather in the Midwestern section, specifically in the operating area of LeMars that we would have acquired this year, was very calm. The summer months had no really unusual events. And the third quarter would have really benefited from that calm weather out in the Midwest.

As a follow-up to that, I think Ralph raises a very good point. Because our company is now more geographically balanced than it has ever been, that in the same quarter in which there can be extreme bad weather like hurricanes in the southeast and the northeast, we had a very calm weather condition where we are doing business in the Midwest. And I think that it helps to underscore the benefits of our strategy to try to be geographically diversified so that we can have the benefits of very good weather and maybe one region where we may be experiencing adverse weather in another. So, it's part of the underwriting approach that we're taking.

Thank you. One other question. The expense ratio you mentioned was up somewhat because of higher contingents which is a good thing because that means your book is more profitable. Do you pay up more of those out in the third quarter or is that more of a continual level?

We actually pay them out once a year. It is an annual calculation and it actually gets paid out to our agents early in the subsequent year.

We, of course, are accruing it based upon the results year-to-date. But the way our plans work, that we want to see the whole year to make sure that the agencies results have been consistent throughout the entire period.

Thank you very much.

You're welcome.

Your next question will be a follow-up from the line of David Lewis of SunTrust Robinson Humphrey.

Hi. Follow-up on Adam's question. On the expense ratio, how many points do you think were in there because of incentive comp that -- you know would kind of normalize it down. I guess the other way I'd look at as you know where should that be running if you had kind of more level profitability and also, because of the storms, wouldn't that brought that down a little bit or is it just that you don't include that in the calculation?

First of all, I would address the last part of that first. The storms did not have a material impact upon the contingent commission. Unlike a year ago, when the hurricane was much -- there was only one event but the event was much more significant on a direct basis, even though our reinsurance programs limited the financial impact of the company, the direct number of losses was much, much greater than this year's would have been. And the contingency is calculated based upon direct losses so a year ago, the impact of that one storm was much greater on the contingencies than this year would have been. Also, the contingencies you might imagine can vary from agency to agency. So that where you might have one agency who might be impacted adversely, you might have another that got lucky and was not really impacted and they may have actually had an improvement.

The inclusion for this quarter, the additional amount of contingent commission is probably in the range of 2% that we had to book. As you might imagine, we tracked this very closely throughout the year. The more experience you have in the year, the more refined your calculation can become. And the less subject to variability it is. And since we did see a continuation of profitability, even with the impact of the storms through the third quarter, we needed to bump that contingency reserve up a little more to reflect that continuation of good underwriting results.

As a follow-up to that day, Dave, there is also impacted on the expense ratio, the fact that in addition to contingent commissions, we have employee bonus programs that are tied in to combined ratio. And therefore, the same issue is involved because the results have been extremely good that those accrued additional compensation for employees, also gets increased. So, it's a combination of those two elements.

Well is it fair to say that you had a little bit of catch up in the third quarter just because you did have more favorable results continue?

I think that's a fair way to put it. We wouldn't say catch up. Really, as Don described very accurately early, the contingent commission formula is a matrix. It includes both premiums and profitability. And when you get later into the year and you have a continuation of premium increases in the 9% to 10% range that we see, that formula starts to throw off accurately so, a little higher levels of contingent commission anticipating now with nine months of experience that that trend should continue through the end of the year. But I think in layman's terms, a little bit of catch up was included.

I guess we would also call it the divisibility of that information is much better because it's more developed because you have three quarters of the year in.

I understand. And as we look at next year, I mean do you have any sense on a GAAP basis where that expense ratio or target should be if you assume I guess the loss ratio in the 62.5 to 63% range? Should it be in the 29.5 to 30.5?

Yeah, I think at those levels of profitability, the 29.5 to 30 is -- to low 30s is probably a realistic number.

Ok. And changing gears to investment income, have you been a little more aggressive on investing some of the cash in short-term investments? Or what's the change there during the past three months?

We have. As we discussed at the last quarterly earnings, we continue to move some of our investments into municipals. Our investment income quarter-to-quarter was up over 4% in the third quarter compared to the second quarter. And that's -- even though a lot of that investment was being moved into municipals, which has a favorable effect on our effective tax rate, if you look at the effective tax rate for the third quarter, it was down from 30.5% effective tax rate in the second quarter down to 28.4% in the third quarter. So, the investment income doesn't entirely reflect the bottom line impact of moving that money. We did have very positive cash flow during the quarter. We threw off about $11.5 million of new cash during the quarter. And what actually happened was about a third of the short-term money we would have had at the end of last quarter got moved over into longer-term investments. But it was simply replaced by the additional cash flow that was coming in from operations.

Well, to look at the tax rate then, if you continue your strategy of higher muni investments, do we think something in the 28.5% range is a better tax rate here moving forward?

Absolutely.

As well as in '05, right?

Yes.

Ok. And I think that's -- oh, can you give me an idea what net written premium was if we exclude LeMars and Peninsula?

Sure. Let us grab that number real quick.

Ok. I guess where I'm going at with that, are we seeing everything stay pretty steady once we take out LeMars and Peninsula on the net written side or are we seeing any improvement or deceleration? I don't know if you have looked at that closely. On the written side.

I'm sorry, Dave. We're trying to get this net written premium number for you. Could you repeat that question.

I guess where I was going at is trying to figure out if we're seeing any acceleration or deceleration on the net written side if we exclude LeMars and Peninsula over the last several quarters.

It's staying pretty consistent. For the nine months ended September 30th, the core companies are excluding the two acquisitions. The written premium would have been up about 8.7%. That's just a little bit less than we would have seen through the six-month period. So, there might be just a tiny amount of deceleration there but not much.

And did you have it what it was for just the third quarter?

My guess would be the third quarter would probably be in about the 8.5% range. It would almost have to be.

Right. Ok. All right, great. Thanks very much.

You're welcome.

Your next question will also be a follow-up from the line of Beth Malone of Advest.

Hi, thanks. Do you think that there's any impact to your frequency or loss ratios as a result of higher gas costs? Do you believe your customer base may be driving less as a result and would this have any impact longer term, do you think?

I think, Beth, I think it is too early to determine that, certainly gas prices are up substantially. And if they stay at that level, I guess our expectation would be that miles driven on average per car will probably trend down or they will plateau. But I think it's too early to be able to tell. As you know, the American people are in love with the automobile. And that I don't think the current prices are going to stop them from going where they want to go. If it got dramatically higher, then I think that would be a different story. But I wouldn't be betting on people slowing down in miles driven based upon the current prices.

Ok, thank you.

Once again, ladies and gentlemen, for any additional questions, at this time, please key star one. For any additional questions, please key star one. Your next question will also be a follow-up from the line of Mike Grasher of Piper Jaffray. Sir, you may proceed with your question.

Just wanted to get a quick update on the share repurchase program. As far as how much you repurchased in the quarter and where it might stand.

It was not extensive. Keeping in mind that if you look at the various fines with the SEC, they would all be B shares. We have not purchased any A shares although we have said from time to time that we might. But what we have basically repurchased are B shares. I think Ralph has the number.

Mike, we would have purchased just under 40,000 B shares in the quarter.

Thank you.

Ladies and gentlemen, thank you for your questions today. I would now like to turn the call back over to Mr. Ralph Spontak, Chief Financial Officer for Donegal for closing remarks.

Don't really have any closing remarks. Just like to thank all of you. We had some very good questions today. And I appreciate all of you spending your time to listen to our conference call. Thank you all very much.

Thank you.

Ladies and gentlemen, thank you for participating in the quarter 3 2004 Donegal Groups earnings release conference call. This call has concluded, you may disconnect now. Good day.